CooperativesImproving Quality of Life

Before the Lights Came On

As time marches on, people like Melvin Winger become fewer and farther between. He has spent his entire life in Stanton County, Kansas; a small farming community in the Southwest corner of the state. While kids will soon not remember a time before cell phones, he recalls a time without electricity.

"To me, it made our country. We were able to do things other people were doing. We were behind the curve as you might say, and you couldn’t hardly keep up [before]."

Melvin Winger now serves on the Board of Trustees at Pioneer Electric Cooperative, the company his father and several other men founded in 1944 to electrify the area.

Wide Open Spaces

In 1911 a group focused on the interests of investor owned utilities(IOU's) called the National Electric Light Association (NELA), noticed an untapped market. They urged the USDA to initiate electrification education to farmers in rural America. After further investigation, they came to the conclusion that there was no way a profit could be made. At a time when the average national income was $1,800 a year, IOU's were charging $5,000 per mile to put in electrical line. The NELA committee in charge of rural electrification even advised against the notion saying that only commercial consumers, such as creameries, would be worth the effort. IOU's would shift away from their pipe dream of rural electrification and focus on promoting appliances and other things requiring the use of electricity.

A map of the U.S., published in the Minneapolis Tribune, in 1921 showing state size based off of population using electricity

By 1930, electricity was available to 90 percent of the population living in urbanized areas, but in contrast, 90 percent of rural areas did not have access to electricity of any kind. At first glance you want to see a solution, but the truth is that it just doesn't work. By nature the dense population of cities is what allows investor owned utilities (IOU's) to make fiscal sense. For IOU's to provide electricity, in rural areas with low population density, they would need to raise their rates across the board, or provide free infrastructure to new rural customers, which would be ill-advised due to a poor return on investment.

A New Day from the New Deal

President Franklin Roosevelt signed an Executive Order in 1935 to establish the Rural Electrification Administration (REA), giving an entire sector of the U.S. the chance to finally have something that we take for granted as an essential of life today. The REA was granted $100 million in available loans to kick start electrification of the rural U.S. Driven by a willingness to do the work themselves, cooperatives took full advantage of the opportunity, claiming 70 percent of the loans. By 1941, the REA had granted $434 million in loans.

In 1939, cooperatives could build a mile of single phase electrical line for an average of $538. At the same time it was costing investor owned utilities (IOU's) $1,800 to $3,000 per mile. People began to realize that cooperatives worked, and in most cases, better than an IOU, which scared them. To combat cooperatives that threatened their business model, IOU's spiked the wholesale price of energy to un-affordable prices, putting many cooperatives out of business. The REA caught wind of this tactic and documented nearly 200 cases of what they coined "cream skimming." While visiting his home-state to assess what he could do, REA Deputy Administrator, John Carmody, found a way to fix his problem. He recalled his dilemma during an interview with the NRECA in 1960.

"At the hotel that evening, a young reporter for a newspaper in the area, a man with eagerness written all over his face, wanted to know what I thought REA could do about bringing rural electrification to that part of the state. I didn't know what I was going to say, but I knew from my talks with farmers and others that the reason the co-op was having so much trouble [getting established] was the high price it had to pay for wholesale power.Then, like a flash, the answer came to me. 'Young man, the Rural Electrification Administration is going to build a generating plant right here, and that plant will produce electricity to take care of all rural needs at a price far lower than anything the co-op can get from the power companies. The next day, the headline in the local morning paper shouted: "REA To Build Big Generator Here." The article went on to quote Carmody, "The construction of lines here has been held up considerably due to indecision as to the source of power. This is the first [co-op] project under construction without definite power rates. We have ample funds for the construction of a generating plant, and unless a decision is reached soon with electric companies for suitable rates we will proceed with construction work." Within a week, Pennsylvania Electric Company slashed its wholesale rate to Northwestern REC from 3 cents per kWh to 1.3 cents per kWh."

Left: U.S. cooperative service areas(2015) Right:state average kW/h prices

Today, there are over 900 REC's providing electricity to 12 percent of the nations electric consumers, while maintaining 42 percent of the nations distribution line, which covers 75 percent of the nations land mass. Through collective buying power, REC's make providing electricity in rural areas at proportional and reasonable prices fiscally possible, and 85 years has not changed the fact.

All for One and One for All

A cooperative is defined as "an enterprise or organization owned by and operated for the benefit of those using its services."

Rural Electrification is just one example of the way that cooperatives have made a deep impact in people's lives. Cooperatives can be found in the form of grocery stores, grain elevators, insurance agencies and more.

According to a study conducted by the University of Wisconsin, there are nearly 30,000 cooperatives in the U.S. totaling 73,000 places of business. Collectively, they own $3 trillion in total assets and generate $500 billion of revenue each year. As defined by the USDA, there are four different classifications a cooperative can fall under.

Commercial Sales and Marketing

Includes farm supply and marketing, bio-fuels, grocery cooperatives, arts and crafts and other retail services.

Includes rural electric cooperatives, rural telephone cooperatives and water cooperatives.

4,525 firms

19,682,000 members

$119,142,000 in assets

$36,399,000 in yearly revinue

It is More Than Lucky

No matter what service is provided, every cooperative abides by 7 core principles. Without them, a cooperative is subject to fail.

Voluntary and Open Membership

Cooperatives are voluntary organizations, open to all people able to use its services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

Cooperatives abide by most of the same laws that investor owned businesses do; complying with state regulations for business licenses and the hiring of employees and independent contractors.

Democratic Member Control

Cooperatives are democratic organizations controlled by their members—those who buy the goods or use the services of the cooperative—who actively participate in setting policies and making decisions.

To ensure the members interests are at the forefront of every decision, most cooperatives are run by a board of directors, who are members themselves, and have been elected into position by the members. A Cooperatives focus in not limited by a sole desire to generate a profit. Instead, a cooperative can use its excess revenue to improve the future of it's members and service area. Investor owned businesses are run by shareholders who dictate the structure of the corporation, thus making jobs less secure. Cooperatives are advantageous because their employees are members of the community for whom they work for, and are more likely to have stable jobs that provide fair-pay. As a result, employees have the opportunity to invest long-term in the cooperatives overall growth and impact on the community.

Members' Economic Participation

Members contribute equally to, and democratically control, the capital of the cooperative. This benefits members in proportion to the business they conduct with the cooperative rather than on the capital invested.

Cooperatives are non-profit organizations, and can't stockpile money. Retained margins describe the difference in operating costs verses the amount collected, which results in member’s capital credit check. Retained margins paired with total meter use determines a proportional capital credit check that is returned to each member.

Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If the co-op enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the members and maintains the cooperative's autonomy.

Most cooperatives will have to engage with other businesses from time to time in order to purchase material or contract a party with a special skill set. Employees entrusted with managing a cooperative cannot allow outside interests to compromise their democracy. The members control is a matter of utmost importance, and when these occasions arise, they must be done through the proper democratic channels to ensure it is in the best interest of the community.

Education, Training and Information

Cooperatives provide education and training for members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperative. Members also inform the general public about the nature and benefits of cooperatives.

Members being knowledgeable on all aspects of their cooperative is key. This begins with the cooperatives management being as transparent as possible in regards to the decision's that they make, and pushing knowledge of the issues onto it's public so that they can be involved. This alone ensures that the communities priorities are at the core, and if something does go wrong, members understand they were in control and can make a change.

Cooperatives strive to educate their members on more than just critical product information and policy however. Co-ops speak to larger issues within society such as feeding the hungry, clothing the needy and promoting economic development. No matter what is important to the members, for cooperatives to be successful in their mission, the members must be willing to engage and be actively involved in the matters they hold in high regard.

Cooperation among Cooperatives

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

Just as members working together can accomplish things unthinkable on their own. Cooperatives can work together with other cooperatives to make a difference on an even larger scale. Whether it's purchasing material in bulk at a lower rate to save the members money, or sending a lobbyist to congress to fight for the cooperatives interests, multiple parts always prove to be stronger when they band together

Concern for Community

While focusing on member needs, cooperatives work for the sustainable development of communities through policies and programs accepted by the members.

Cooperatives exist to serve the needs of their members because without them, the cooperative ceases to exist. The structure of a cooperative as a whole is built around community and as a result principle seven is the driving force behind the previous six principles. By practicing equality, democracy, proportional ownership, education, political involvement, cooperation and outreach programs; improvement of the members quality of life, and community as a whole occurs naturally.

Whatever's Best for You

The purpose of a cooperative is to empower the community so that together, they can improve their quality of life. Cooperatives improve the lives of community members with active facilitation of community partnerships. By nurturing these relationships cooperatives gain a better understanding of enterprises and activities needed within the community. Cooperatives want to be engaged in the lives of their members so they actively listen to the concerns of members. Cooperatives can encourage and assist community enrichment efforts in many ways. Cooperative were designed as a catalyst to bring people together. Cooperatives come together to lead construct projects aimed to better the community. Some of these projects include construction of hospitals, nursing homes and schools. Cooperatives are not limited to construction efforts, they also service community utilities such as telephone and broadband services. Whether it is construction or service, cooperatives act to enrich the lives of its members. Cooperatives recognize that member engagement is the path to member empowerment. Enhancing the community is detrimental to the success of cooperatives as it speaks to more than any one product or service.

Change for Change

A cooperatives concern for the community is physisically exemplified through their community outreach programs. One such program that over 250 electric cooperatives participate nationally in is Operation Round Up. The initiative gives members the opportunity to raise money for local charities by rounding their monthly electric bill to the closet dollar amount. Members collectively taking advantage of Operation Round Up have raised millions by donating their spare change. The funds raised stays within the service area it was collected, and as a result, members are able to make a direct impact on their personal community. The maximum amount of money that can annually be collected from members is $12. On average each member donates $0.50 per pay period. Members understand cooperatives concern for the community and willingly enroll. Parallel to the second principle of cooperatives members can decide whether they want to participate in community outreach opportunities or not. If members choose to opt out of initiatives their bill will not be rounded nor will it be penalized for lack of participation. The annual bill does not leave members in the dark to the amount of money being donated either. The collective donation amount is clearly noted on each monthly statement and on also shown on the annual bill.

“We’re talking about organizations and non-profits that have very little money in the bank and wouldn’t be able to provide what they do without the assistance through Operation Roundup... and that's what makes it worth it at the end of the day."

First Electric Cooperative in Little Rock, AR. started using Operation Roundup since 1989. Tonya Sexton, the Vice President of Marketing and Communications at said that out of all of their charitable initiatives, Operation Roundup is the one their members have invested the most in.

Looking Forward

The 21st century cooperative continues to change with each passing day. Future cooperatives will face cultural changes that will take time to be adopted by the members. In the future, members should expect to become more engaged in the process. With every trustee that retires from the board,a member of a newer generation fills their leadership positions. With a new generation of leaders at the forefront of future cooperatives, members should expect to see changes specific to their marketplace.

The vision of future Electric Cooperatives involves implementation of a state-of-the-art electricity delivery system. These systems will provide affordable and reliable electricity, safe for consumer-owners. Electric cooperatives will utilize their network to further expand operations, while taking into account the risk involved. Different to the 20th century cooperative model members, should expect their electric service to be more affordable and environmentally friendly.

Cooperatives will make these transitions to gain their members trust and ensure the quality of their products are up to par. All cooperatives will be responsive to the needs and expectations of their member-owners. As the need for more environmentally friendly products grows within our culture, cooperatives alike will have to make adjustments. This could mean the use of renewable energy and addressing environmental concerns head on.

The future of cooperatives will be proactive in creating systems to minimize threats and maximize member’s quality of life. The members voice will always be at the center of change and be a pivotal role in future transitions.